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The Burden of Student Debt

Posted by Matthew Heap in ,

Debt can lead to a number of unpleasant spirals, but what does it actually prevent students from achieving? Admittedly student loans are quite a 'soft' form of debt having for many years been government backed and reimbursed automatically from pay checks. Nonetheless students are taking on increasing amounts of debt as tuition fees, accommodation and the cost of living all rise. The economic downturn has even led some students to take on masters courses in an attempt to differentiate and outperform their peers at interviews. But how does debt hold students back? What are they otherwise not achieving due to the burdens of debt?

One recent study by Pennysylvania State University addresses just this, stating that many people reach a 'debt capacity' after which their risk profiles change. This can be extremely detrimental to the creative aspirations of young graduates. The UK start up scene is currently booming yet students with excessive student loans are less likely to start a business on their own, according to the study.

"Given the importance of an entrepreneur's personal debt capacity in financing a start-up business, student loan debt, which cannot be discharged via bankruptcy, can have lasting effects later in life and may impact the ability of future small-business owners to raise capital", the study adds. Over the last decade, the average student loan has steadily increased from £740 in 1994 to over £4,000 in 2008 with total loans issued increasing from £316m per annum to over £3bn.

A US study from Berkeley also argues that a high level of student debt deters graduates from public sector jobs, seeking higher paid private sector roles instead. A common response from parents and guardians is for students to work during their vacation, or as many students do, work during their studies.

The current state of the economy does provide less than an optimistic outlook for students who are graduating with increasing levels of credit to their name and attempting to enter into a job market that is less than buoyant. Is the government providing the resources to support these highly qualified graduates and is society providing an answer to the increasing impact that student debt is having on young people entering the labour market?

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